Pakistan has moved a step closer to launching an offshore exchangeable bond that could raise $1 billion, after whittling the number of consortia seeking to underwrite the debt issuance down to two.
Investors will be watching the debt issuance by domestic energy giant Oil and Gas Development Company (OGDC), expected to be completed late next month, with keen interest.
It marks the second attempt by Pakistan’s Privatisation Commission (PC) to launch the debt sale. It has been designed to raise at least $500 million, with a reported potential “greenshoe” option of up to $500 million more.
The deal would mark Pakistan’s return to the international capital markets for the first time since June 2007. Since then the country has been rocked by presidential upheaval, assassinations, rising security fears at home and abroad and, in recent days, the killing of Osama bin Laden by US forces.
That action, undertaken without the cooperation of Pakistan’s armed forces or Inter Services Intelligence agency, has further deepened the rift between Washington and Islamabad.
America has long believed that factions with Pakistan’s security network were protecting bin Laden. If this is proved to be the case the US could reduce its aid budget toward Pakistan and its military, or pull out of the region altogether.
So the OGDC will be a mark, not just of Pakistan’s determination to sell off public assets, but also of confidence (or no-confidence) in a troubled state.
Bankers in Karachi, as well as Mumbai, Hong Kong and London, have been heavily pitching legislators in Islamabad in recent months. The number of consortia was yesterday cut to two and a final decision on who will underwrite the deal will be made by early next week, and perhaps as early as today.
The first group includes Barclays Capital, Standard Chartered, and a Pakistani-foreign joint venture comprising Bank of America Merrill Lynch and KASB Securities, bankers involved in the deal said. The second group is made up of Citi, Credit Suisse, JPMorgan, and Pakistani investment house BMA.
Debt will be issued transferable into OGDC shares within three years. In 2008 the PC sought to issue a similar $750 million-$1 billion exchangeable bond, but dropped the idea at the height of the global financial crisis.
Wasar Satti, a capital markets consultant working at the PC has been quoted as saying that the government remained “determined to go through with the fund-raising this time around”.
Pakistan had a current account surplus through the nine months to March 31, but getting a major debt sale out cleanly at such a stressful time will rely on an unusual level of efficiency, market interest, and luck.
Bankers say interest appears to be there, particularly among hedge funds with exposure to emerging markets. A clearer idea on pricing guidance is still a long way off. But market sources said the PC will seek to price OGDC stock in the sale at between R180 ($1.67) and R200 a share, a substantial premium to the firm’s closing price (R141.86) on May 4.